An extract from The Dominance and Monopolies Review - 7th edition

Abuse

i Overview

The assessment of abuse in the United Kingdom is consistent with EU law. The UK competition authorities and courts are required to interpret the provisions of the Act consistently with EU competition law wherever possible and to have regard to relevant decisions and statements of the European Commission (although this is likely to change after the United Kingdom leaves the EU). There is no exhaustive list of abuses under Section 18 of the Act (the equivalent of Article 102). Any conduct by a dominant undertaking that excludes competitors or exploits customers is potentially abusive, unless that conduct is objectively justified. Moreover, the High Court has held that conduct should be looked at 'in the round', rather than seeking to identify on a narrow basis whether conduct departs from 'competition on the merits'.

ii Exclusionary abuses

Enforcement action in the United Kingdom has generally focused primarily on exclusionary abuses (although, more recently, the CMA has pursued a number of exploitative abuse cases relating to suspected excessive pricing).

The OFT decision in Gaviscon is notable in that it demonstrates the OFT's (and, by extension, the CMA's) willingness to grapple with novel abuses. The case concerned abusive behaviour by Reckitt Benckiser, which held a dominant position in the market for alginates and antacids. Reckitt Benckiser withdrew its Gaviscon Original product from sale to the NHS when the product no longer benefited from patent protection, even though it remained on sale 'over the counter'. Reckitt Benckiser replaced Gaviscon Original with a similar product, Gaviscon Advance, which continued to benefit from patent protection. Because of the way the NHS computer system operated, the withdrawal of Gaviscon Original made it more difficult for doctors to prescribe alternative generic products as opposed to Gaviscon Advance. The OFT concluded that this action was expected to 'hinder the development of generic competition' to Gaviscon, thereby excluding competition from the market. Reckitt Benckiser entered into a settlement agreement with the OFT, agreeing not to challenge its decision and to pay a fine of £10.2 million.

In Cardiff Bus, the OFT investigated exclusionary behaviour preventing a competing bus company, 2 Travel, from establishing a rival service to the dominant incumbent. The case concerned both price and non-price predation. Cardiff Bus reacted to the launch of a rival 'no-frills' service by introducing its own no-frills service on the same routes, without a valid business case and running at a loss. In both Cardiff Bus and Gaviscon, the OFT uncovered evidence of anticompetitive intent.

The focus on exclusionary conduct is borne out by other recent investigations. For example, in addition to the cases mentioned in Section II:

  1. In December 2015, the Office of Rail and Road (ORR) closed an investigation into Freightliner on the basis of binding commitments. The ORR had investigated the terms of Freightliner's agreements with customers for the provision of rail freight services between deep-sea container ports and inland destinations. The terms included exclusive purchasing obligations, minimum volume commitments and suspected loyalty-inducing rebates. Certain customers were also prevented from reselling capacity purchased under the contracts. Freightliner committed to remove or amend the provisions in its contracts to address the ORR's concerns.
  2. In June 2015, the CMA closed an investigation into suspected loyalty-inducing rebates in the pharmaceutical sector, on the grounds of administrative priorities. The case was closed before any statement of objections was issued. The CMA nonetheless sent a warning letter to the relevant party, identifying potential concerns that may arise in the context of discounts and rebates.
  3. In October 2014, Ofcom closed an investigation into a suspected margin squeeze by BT in relation to superfast broadband services, following a complaint by TalkTalk Telecom Group plc.
  4. In September 2014, the CMA closed an investigation into suspected abuse of dominance by Epyx concerning the market for vehicle service, maintenance and repair platforms on the basis of binding commitments. The CMA had investigated whether Epyx's contracts prevented customers from switching to competing suppliers.
  5. In June 2014, the CMA closed an investigation into suspected abuse of dominance by Certas Energy UK Limited (previously GB Oils Limited) concerning the wholesale supply of road fuels in the Western Isles of Scotland on the basis of binding commitments. GB Oils had entered five-year exclusive contracts with filling stations, preventing them from sourcing fuel from other suppliers.
  6. In 2011, the OFT issued a reasoned 'no grounds for action' decision in relation to Idexx Laboratories Limited, a supplier of in-clinic companion-animal diagnostic testing equipment. The OFT investigated whether Idexx had engaged in anticompetitive bundling and predatory pricing, concluding that there was insufficient evidence that Idexx's conduct was likely to restrict or impair effective competition in the relevant markets.
  7. In 2010, the OFT issued a similar 'no grounds for action' decision following an investigation of Flybe. The investigation followed a complaint that Flybe had engaged in predatory conduct that excluded a rival airline, Air Southwest, from certain routes. It was clear that Flybe had priced below its average avoidable costs of entry, but the OFT found that Flybe was itself a new entrant and that it was normal commercial practice for an airline in this position to operate at a loss. The situation could therefore be distinguished from the position of a dominant incumbent reacting to new entry.
iii Discrimination

Discrimination cases in the United Kingdom have also tended to focus on exclusionary conduct. For example, in 2006 the ORR found that English, Welsh and Scottish Railway (EWS) had engaged in abusive discriminatory conduct through the prices it charged for access to its coal haulage services. The ORR found that EWS had discriminated against Enron Coal and Steel Limited (ECSL), offering prices that excluded ECSL from bidding effectively for coal haulage contracts. More recently, in SSE, the Office of Gas and Electricity Markets (Ofgem) accepted binding commitments to address the provisional concern that an upstream supplier was offering discriminatory terms that favoured its own downstream business over those of competitors.

Similar concerns were considered by the Water Services Regulation Authority (Ofwat) in 2015 in Bristol Water and Anglian Water, and by Ofcom in 2018 in Royal Mail. In March 2015, Ofwat closed an investigation into Bristol Water on the basis of binding commitments. Bristol Water holds a local monopoly in the upstream market for the supply and maintenance of water infrastructure. Bristol Water is also active as a 'self-lay' contractor in a contestable downstream market, installing pipes that connect to the mains supply. Bristol Water was suspected of abusing its position in the upstream market by offering discriminatory terms to other self-lay contractors. The commitments require Bristol Water to ensure functional separation between its upstream and downstream services, and to ensure that its upstream business offers equivalent price and non-price terms to third-party contractors as offered to its own downstream business.

In December 2015, Ofwat closed an investigation into Anglian Water, finding no grounds for action. This followed a statement of objections issued in December 2011 and a supplementary statement of objections in April 2014. Anglian Water has a statutory monopoly for the provision of water and sewerage services in its region. Ofwat provisionally found that Anglian Water had implemented an illegal margin squeeze when pricing its upstream services to a rival, Independent Water Networks Limited (IWN), which was competing with Anglian Water for the contract to supply a new site with water and sewerage services. Ofwat eventually concluded that, as the site developer evaluated bids for water and sewerage services on a combined basis, it was unlikely that a margin squeeze applied to sewerage services alone would have made it materially more difficult for IWN to compete for the contract.

In August 2018, Ofcom fined Royal Mail £50 million for abusing its dominant position on the delivery services market. Ofcom found that Royal Mail's proposed changes to prices charged for bulk mail delivery services – charging more to operators who used Royal Mail only for delivery to the areas in which they did not have their own delivery capabilities – amounted to unlawful price discrimination. The price difference was found to discourage entry into the downstream delivery market and to increase barriers to expansion for postal operators seeking to compete with Royal Mail.

In Purple Parking, the High Court found that Heathrow Airport had abused a dominant position by offering discriminatory terms of access to providers of valet parking services. Heathrow permitted its own valet parking service access to its forecourts at Terminals 1 and 3, while requiring rival service providers (including Purple Parking) to relocate from the forecourts to the car parks. The High Court held that the forced relocation of rival providers placed them at a competitive disadvantage, and that this was sufficient to demonstrate abuse. The case is unusual in that there was no requirement to show that access to the forecourts was an essential facility or that competition would be eliminated entirely.

Similarly, in Streetmap, the High Court proceeded on the assumption that, at least in principle, a dominant undertaking might commit an abuse by promoting its own products or services in a separate market over those of a rival, provided the conduct had an appreciable effect on competition in the second (non-dominated) market and was not objectively justified. The Court did not specifically consider whether a dominant undertaking that was not an essential facility could be required to provide access to downstream rivals on equivalent terms to those offered to its own downstream business. This question was not necessary to decide the case on the facts, and arguably overlaps with questions currently being considered by the European Commission.

The Court went further in ATS v. London Luton Airport Operations. In this case, the Court concluded that a concession agreement granted to National Express by London Luton Airport Operations, that carved out easyBus from the exclusivity provisions, was discriminatory against other bus operators even though Luton Airport Operations (the upstream supplier) was not active in the downstream bus market. The Luton Airport case clarifies a question previously considered in SEL-Imperial Ltd v. British Standards Institution. In this case, the High Court considered an action for strike out by the British Standards Institution of an abuse of dominance claim concerning the certification of replacement vehicle parts. The High Court refused to strike out the claim because it was insufficiently clear at the time whether decisions affecting a market in which the alleged dominant undertaking was not active could constitute an abuse. The decision by the CJEU in MEO/GDA also confirmed that discrimination can be abusive even where the dominant firm is not active in the downstream market in which the discrimination is felt.

iv Exploitative abuses

While the focus of UK enforcement action has mostly been on exclusionary conduct, excessive pricing has been considered in a number of cases, including Napp Pharmaceutical Holdings Limited, Thames Water Utilities Ltd/Bath House and Albion Yard and Albion Water v. Ofwat. These cases have all considered the potential exclusionary effect of pricing behaviour. More recently, as noted above, the CMA fined Pfizer and Flynn Pharma for 'pure' excessive pricing (where there was no exclusionary effect) but now has to reconsider the case after it was remitted by the CAT. The CMA also has two ongoing investigations in suspected excessive pricing, and recently issued a supplementary statement of objections addressed to Advanz Pharma concerning suspected excessive pricing.

The Court of Appeal grappled with the concept of excessive pricing in 2007 in Attheraces Limited v. British Horseracing Board Limited. This case concerned the price at which the British Horseracing Board made available pre-race data to Attheraces for sale to overseas bookmakers. Attheraces claimed that the price charged was excessive, as well as discriminatory, amounting to a refusal to supply. Attheraces was successful at first instance, but its claim was overturned by the Court of Appeal. The Court of Appeal accepted that, in principle, prices were excessive if they significantly exceeded the economic value of the product. In assessing economic value, however, it was insufficient merely to show that prices exceeded costs by a reasonable amount, without having regard to the price customers (in this case, the overseas bookmakers) were prepared to pay. The Court also noted that there was little evidence of harm to ultimate consumers (the betting public) from the alleged excessive pricing.